About

EBay (EBAY) is a Web pioneer, having built a multibillion dollar business out of allowing people to essentially put garage sales on the Internet. That simple idea led to fast growth more than a decade ago and helped define what was possible online for other companies that followed. The company's IPO in 1998 turned founder Pierre Omidyar and eBay President Jeffrey Skoll into instant billionaires.

Fast-forward to 2009, and the 1990s Internet darling is steering through turbulence. EBay seems to be want to be more an online retailer and less an online auction site. If it makes such a move, if will have to fight online retailers such as Amazon.com (AMZN) and Zappos and their impeccable customer service. It will also have to take on formidable brick-and-mortar retailers like Walmart (WMT) and Target (TGT), which are focusing more on online sales. Why does eBay want to join a battle it's not likely to win?

EBay CEO John Donahoe said the company is moving in the right direction. "While we still have a lot more work to do to improve trust, value, and selection, we are making progress," he said, during the company's third-quarter conference call last month.

He added that eBay is emphasizing its trusted sellers, who offer fast shipping and guaranteed returns. "For the first time, buyers who come to eBay looking for fast, trusted service, can easily spot top-rated sellers by the prominent badge in search results," he said.

Customers are noticing, Donahoe said. Buyers and sellers are also seeing more sellers peddling fixed-price items, rather than items for auction, which is how eBay built its brand.

Easy Returns

I'd argue that while its important to establish more trust on eBay, which the company seems to be doing, de-emphasizing auctions is a mistake. Why would you or I buy a new pair of boots on eBay for the same price as we'd buy them at Zappos, which offers returns for a full-year after the product purchase?

Granted, most people don't need to bother with returns. But if you're returning an item to Zappos, there are instructions on how to do so on its website and a toll-free number to call if you have any questions. Walmart.com allows customers to return their items by mail or to a store.

While most items are never returned, the perception of trust and safety is underlined by the return policies. With eBay, even from a trusted seller, the perception of trust by a buyer isn't as strong.

"What Donahoe has tried to do is make it more Amazon-ish, with a greater array of fixed-price offerings," says Fred Moran, analyst at Benchmark Co. "It might be that making it more like Amazon-like is the thing that saves them and helps them restore growth."

Moran says eBay faces an uphill battle against rivals like Amazon.com. "EBay's mousetrap is not as strong. How they compete with Amazon is the right question to ask. I don't know if Donahoe has the answer." Moran has a hold rating and a $29 price target on eBay shares, which is a 22% increase over Friday's closing price of $23.74.
Search Snafus

Investor Sandi Lynne says that while eBay's Internet payment service PayPal is adding revenue and the company is selling off its Web-calling service Skype, eBay needs to focus on improving the search function on its site. "If I'm searching for something specific, it gives you too much stuff in addition to what you asked for," says Lynne.

When she searched for a Mercedes X600 on eBay Motors, she got the Mercedes emblem, the wheel rims, the original owners manual, yet she wanted only a list of the available cars. "That's why eBay is doing worse that ever before," she said. "The more you try to refine the search, the more likely you are to have it tell you your search yielded no results. Amazon's search is the opposite."

The more eBay morphs into an online retailer and gets away from its roots as an online auction site, the more likely it's fighting a battle it's going to lose. While it's important to establish trust among sellers and buyers on eBay, trying to compete with Amazon or Walmart and their online guarantees is a waste of time. Even if eBay can match the services offered by other retailers, why would a buyer chose to shop there?

EBay's strengths are in the variety of old, hard-to-find collectible and discounts on new items. That's why people shop at eBay, and if the company moves too far away from that core identity, it may never rediscover its mojo.
Anthony Massucci is a senior writer and columnist for DailyFinance. You may follow him on Twitter at hianthony.